Privatization follies

Halliburton fraud. IRS tax-collection shenanigans. Voting-machine madness. There's got to be a better way.

By Ellen Dannin

Published November 22, 2004 8:30PM (EST)

Imagine how the world would be different if Diebold, the electronic voting-machine manufacturer, were owned by the government.

Well-documented flaws in Diebold's machines set off alarms long in advance of Nov. 2. Today, as a result, many people feel a sense of doubt about the results of the presidential election -- doubt that is impossible to assuage and that does no one good. It undermines the credibility of the "winner" and fosters suspicion and cynicism among the public.

As a private-sector company, Diebold is accountable only to its owners. As a part of the government, Diebold would still be accountable to its owners, but its owners would be the public, and we would have many tools to take it to task. Surely, the importance of voting equipment to a free, democratic society would make it a natural candidate for truly public ownership.

Except, the current trend in government is precisely the opposite -- to take things out of the public sector and move them to the private. For decades, privatization enthusiasts, such as the Reason Public Policy Institute and the Mackinac Center, have been engaged in a full-bore campaign to persuade us that private is better than public. In the Bush administration, such enthusiasts have some of the strongest support they've ever had.

But privatization has a dark underbelly that the public is only now becoming aware of. We see glimpses of this in the ongoing investigations into fraud, profiteering, misfeasance -- and acts of downright anti-Americanism -- by Halliburton. Those actions cast doubt on the officeholder one heartbeat away from the presidency. Now Diebold casts a cloud over the validity of our election.

Diebold and Halliburton are not the only private contractors who appear to have betrayed the public's trust, pillaged our treasury, and endangered our national security. Here are just a few recent incidents.

  • A contractor with a history of violating IRS security policies was hired by the IRS to develop software and was given root access for 50 of its employees to the IRS operating environment. Root-level access to a computer system is no trivial privilege. It allows the user to make unlimited and unrestricted changes to any part of the computer system, including the operating system and computer applications. An audit report released in March by the treasury inspector general for tax administration (TIGTA) noted, "In many cases, a user with root-level access could turn the audit trail off and/or erase audit trail data, without any record as to who used the root-level privilege." This means that the contractor or a hacker could have navigated the system and gained access to taxpayer information.

  • The TIGTA report also found that contractor employees had installed third-party e-mail, chat, and instant-messaging software on a third of the IRS computer workstations reviewed. This compromised security by potentially introducing viruses and spyware and allowing hackers to gain access to knowledge of the system's software architecture. Contract workers also lost or destroyed taxpayer remittances worth more than $1.2 billion.

  • Some of the privatization now taking place combines financial losses to the public with crony capitalism. On Oct. 6, 2004, House and Senate negotiators agreed to contract out IRS debt collection to bounty hunters. This decision came about despite a prior experiment with private tax-debt collectors. Those collectors violated the Fair Debt Collection Practices Act and failed to protect the security of sensitive taxpayer information. Not only that, an IRS study found that IRS employees are far more cost-effective. The study found that spending $296 million to hire more IRS compliance employees would lead to collecting an additional $9.47 billion in known tax debts per year, a return of $31 for each $1 spent; a private contractor would cost $3.25 billion to collect $13 billion, a return of $3 for each $1 spent.

  • Contracting work out, even when public employees can do the work for less, is part of a pattern across agencies. For example, in early 2003, the Department of Defense's inspector general found that work was contracted out because of a $31.8 million error made by a private consultant. It would have been $29.9 million cheaper to have kept the work in-house. The contract also lacked adequate standards to measure how well the contractor was performing. This costly error was uncovered only because Rep. Dennis Kucinich pressured the Department of Defense for the information.

  • Recently, the government tried to contract out security jobs at an Agriculture Department research center. It refused to set up a formal competition by bidders that would have ensured that the same quality work or better could be performed by private contractors for less money. After pressure was brought to bear, Agriculture agreed to submit to a streamlined competition, but it then stacked the deck by claiming that the government used twice the number of security jobs than it actually used. As a result, any contractor's bid would certainly be lower. This behavior is clearly not in the public's interest. The obvious explanation seems to be that someone wanted to ensure that the work went to a private contractor. Again, this was uncovered only because several senators intervened and requested an investigation.

    • You may wonder why the federal employees whose jobs were contracted out, or their union, did not sue or contest these decisions. The answer is: They have been barred by law, specifically by provisions of a federal order known as Circular A-76, a from contesting anything -- even fraud -- in a decision to contract out. The only party who has the legal right to complain is a contractor whose bid is not accepted. We, the public, have also been excluded from contesting these decisions.

    In other words, our national security and fiscal stability depend on the kindness of senators and representatives. This leaves a thin margin of comfort. The truth is that private is not always better than public. And the indiscriminate rush to privatize has done the American public no favors.

    Let's return to Diebold and the 2004 elections. If the government ran elections and controlled all aspects of voting, life would not necessarily be perfect, but we would at least not have our elections held hostage by a company that cannot be held accountable. Instead, decisions would be made by public bodies who are bound by a web of laws that make them accountable for what they do. Their decisions and actions would be subject to constitutional requirements of due process and equal protection, ensuring just decision-making processes and fair treatment. Their decisions would be controlled by obscure and technocratic-sounding laws, such as the Administrative Procedure Act, the Freedom of Information Act, Open Meetings Acts, and other civil service requirements.

    Privatization proponents call these rules "red tape." But one person's red tape is another's accountability. Right now many of us would be grateful for some of this red tape. These laws are the very stuff of democracy. They ensure that we know who is making decisions. They give us notice that a decision is to be made and provide an opportunity to participate in the process -- as a witness or even as a decision maker on public boards and commissions. They give us access to information. They create records so we can hold decision makers accountable after the fact and discover whether there has been malfeasance. They provide a judicial review of decisions and prevent cronyism and corruption. Public input and demands are inconvenient, but they can save decision makers from costly errors. They give us the ability to affect decisions that concern our well-being. They are what make us citizens instead of customers.

    This transfer of important functions from public to private control should be at the center of a national debate. It is about money and quality of service, but it involves much more. It affects our national security, our personal security and our finances. Despite this, there has been silence -- except from privatization ideologues who cheerlead every movement from public to private control.

    The potential problems created in Iraq by Halliburton and by Diebold in Ohio have few silver linings, but there is one reason for hope: They may finally provide the impetus for public interest and action in this critical area.


    By Ellen Dannin

    Ellen Dannin is a professor of law at Wayne State University Law School, and the author of "Privatizing Information and Information Technology: Whose Life Is it Anyway?" and "To Market, to Market: Legislating on Privatization and Subcontracting."

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